GROWTH in commercial lending and fee income as well as strict cost control and profits at AIB's First Maryland Bancorp subsidiary in the US in the first quarter. Profits after tax at $30.1 million - (£19.28 million) were 5.4 per cent ahead of the result for the corresponding quarter of 1995. The results were in line with market expectations.
Because the US bank has a very high level of surplus capital - it is not paying dividends to the group but retaining profits to fund an acquisition in the US - the return on average equity fell. With surplus capital earning low interest, the return on average equity fell to 10 per cent from 10.83 per cent at the end of December 1995 and 11.02 per cent of March 1995.
First Maryland has an equity to assets ratio of 10 per cent, which is about double the level for the group. AIB's decision to allow the subsidiary to retain profits reflects group strategy to expand in the US by acquisition and by organic growth.
The search for a suitable acquisition in the Maryland/Washington DC/Virginia/southern Pennsylvania area is continuing with a dedicated acquisition team assessing opportunities. But an acquisition announcement is not imminent, an AIB spokesman said yesterday.
The high level of surplus capital explains the fall in the return on average assets to 1.15 per cent from 1.21 per cent at the end of December 1995 and 1.24 per cent at the end of March 1995. Total assets, at $10.5 billion, were 13 per cent higher than the end March 1995 level, with total lending 10.1 per cent higher at $6.2 billion.
Lending rose by 1.6 per cent in the quarter (from end December 1995), commercial lending. Mortgage lending was sluggish in line with normal seasonal patterns and held back by worse than usual winter weather and a rise in interest rates towards the end of the quarter. Retail lending rose by 2 per cent.
Credit card loans at Bell Atlantic in Delaware increased to $126 million from $83 million at end December but credit card lending at the bank was down on end December levels. First Maryland (FMB) has just started a major advertising campaign to boost credit card lending. FMB had total loans outstanding of $6.229 million at the end of March 1996.
Loan growth is expected to accelerate in the current quarter. Excluding Bell Atlantic, total lending at FMB is expected to by 6 to 9 per cent this year while credit card balances at Bell are expected to rise to $400 million by year end.
Net interest income rose by 2.3 per cent to $99.9 million while the bad debt provision was unchanged at $4 million compared with the corresponding quarter in 1995. At 4.26 per cent, the bank's net interest margin was up on the end December level of 4.24 per cent but lower than the end January 1995 level of 4.74 per cent.
Fee income from trust fund management was one third higher at $6.9 million white fees from mortgage business rose by 30 per cent to $5.2 million.
Despite the addition of the Bell Atlantic credit card venture and the promotion, costs by just under 3 per cent to $99.3 million.
